If you’re enrolled in KiwiSaver, or have other investments, you may have come across the term ‘unit price’. But what does it mean?
Think of it as a basket of fruit
An easy way to explain unit prices is to imagine a basket of 10 pieces of fruit, such as apples, pears and oranges.
Each piece of fruit is different and has its own ‘price’. But the basket also has a total price. So, as well as having an individual value, each piece of fruit can also be valued as one-tenth of the total value of the basket. That is its unit price, as one unit in a total basket of 10.
Your KiwiSaver money
This unit price applies to your KiwiSaver investment. Your KiwiSaver investment is a ‘unit trust’, where your money is pooled with that of other investors. The money is used to buy investments on behalf of everyone in the pool, or fund.
Investors don’t own pieces of the individual investments, they own units in the trust that bought them. Think of it this way – in your KiwiSaver fruit basket, you own a piece of the fruit basket, not a slice of apple, or a chunk of orange.
But how do you know how many units you own and what they’re worth? Just like the fruit basket, the value of one unit is the total value of the basket divided by the total number of units in the pool. The value of your units is the unit value multiplied by the number of units you hold.
How can I use unit pricing to track my fund’s performance?
When a pooled fund first opens, the unit price is usually one dollar. When the fund’s investments rise or fall in value, the unit price changes. Let’s say you purchased NZ$1,000 worth of units in a new fund, and got 1000 units (at the starting unit price of NZ$1 each).
Now let’s say investment markets do well, and the manager of the fund invests well, and the value of the pooled fund increases to NZ$1.50 per unit. That means your investment has a value of NZ$1,500 (which is a good return on your starting value of NZ$1,000).
Not all investors put their money in a fund at the very beginning when the fund starts up, however. So, the performance of their fund relative to its unit price is calculated from when someone first puts their money in. That’s also why an individual investor in a fund is likely to have a slightly different return than the disclosed return – because it’s based on time frames.
Let’s go into a bit more detail
To explain things a bit further, let’s say you invested in a fund which ended the month of March with a unit price of NZ$1.50, and three months ago at the end of December, the unit price was NZ$1.20.
The fund has a published three-month return of 25 per cent. But you weren’t invested for three months – you invested in January, when the unit price was $1.25. So, your return at the end of March is 20 per cent.
That’s why unit prices are often more useful to individual investors than published returns.
Should you pay attention to a unit price?
If you enjoy watching your investment, feel free to check the unit price. However, keep in mind that investing is a long-term game. You might see the unit price fluctuate in the short-to-medium term because of how share markets move up and down.
You might enjoy seeing the unit price rise, but it’s common for it to fall sometimes too.
The unit price of your investment fund is the best way to keep track of the value of your investment – just don’t worry too much about short-term ups and downs.
Information correct as at July 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.